HSBC Malta Announces Record Results

by Phillip Morton, Investors Offshore.com

20 February 2007

HSBC Bank Malta plc and its subsidiaries generated a profit - before tax - on ordinary activities of Lm41.4 million (EUR96.3 million) for the year ended 31 December 2006, an increase of Lm4.7 million, or 12.8% compared with 2005. The pre-tax return on average shareholders’ funds (ROE) increased from 27.6% in 2005 to 32.1%.

The Board also approved a Final Ordinary Dividend of 5.3 cents gross per share, and additionally a Special Dividend of 5.3 cents gross per share. This follows the interim gross dividend per share of 5.3 cents paid in August 2006. Together this is a total gross dividend of 15.9 cents per share, and a total of Lm46.4 million in gross dividends for the financial year 2006. At the current share price of Lm2.14 as at close of business on 15 February, this results in a Gross Yield of 7.4 %.

During a briefing for media and stockbrokers held immediately after the board meeting, HSBC’s Chief Executive Officer, Shaun Wallis stated that: “2006 has been a record for HSBC Bank Malta plc with record sales volumes across all product groups, record customer service satisfaction levels and record staff engagement levels, all leading to improved underlying financial results and yet again significant returns for shareholders in the form of dividends.”

Net interest income grew by 5.4% over the prior year, and contributed Lm47.0 million to total operating income. Interest returns on assets grew by Lm8.9 million due to lending volumes increasing by 10%. Key drivers of growth in the lending portfolios were in the personal and nonpublic sector customer segments, and a reduction in lower yielding public sector debt. Improved revenue flows were partly offset by growing customer deposit volumes and a higher interest rate environment, which pushed up interest payable to customers.

Non-interest income levels grew by 18.8%, contributing Lm28.6 million to total operating income. Key drivers were an increase in transactional activity on credit card payments and debit card EPOS machine usage, which grew substantially, as well as increases in funds under management, stockbroking sales and the life assurance business, which also grew significantly.

Against a background of stronger product sales and revenue streams, operating expenses were Lm34.3 million, an increase of Lm2.3 million over prior year figures. Total employee compensation grew by 5.5%, driven largely by performance-related pay benefits, due to the higher sales and profits of the bank. Whilst general expenses increased by Lm1.0 million, within this there were significant upgrades to the infrastructure and branch network, which strategically improved automation and operational efficiencies. This has enabled the bank to absorb larger volumes of business without increasing headcount significantly, and positioned it well for future growth

As a result, the group’s cost to income ratio improved to 45.5% from 46.7% in 2005.

Total assets increased by Lm231 million to Lm1,887 million. Within this figure, loans and advances to customers increased by Lm110 million supported by growth in both the personal and commercial sectors. New loan product lines were introduced to Malta, with a wider choice of mortgage products as well as new financial and advisory packages for the SME market, and new invoice receivable financing to help corporate cash flow. Advances to deposits ratio increased to 76.3% from a prior year end level of 74.3%.

Amounts owed to customers increased by Lm108 million to Lm1,475 million as customer liquidity and banking volumes grew at a sustained rate through the year. Higher interest rates and the investment in automated bank channels strengthened the growth in deposit volumes.

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